Apprenticeship Levy

From the 6th April 2017 HMRC have introduced Apprenticeship Levy which will change the way apprenticeships are funded.

All employers operating in the UK will be subject to apprenticeship levy. However, the company will only have to pay contributions if the total pay bill exceeds £3 million per tax year.


Apprenticeship levy - FAQs

Yes.

You must make sure you are using the option to apply the apprenticeship levy allowance otherwise your payroll software will start calculating the apprenticeship levy charge.

If you choose  to apply the option "No Allowance" the apprenticeship levy will be calculated on your whole pay bill even if the total is less than £3 Million. Unless you are operating as part of a group of companies you should select the option for maximum allowance (£15,000).

See the section below "How do I apply Apprenticeship Levy Allowance? Apprenticeship Levy Settings".
During the process of moving your payroll from 2016/17 to 2017/18 tax year you will be prompted to select an apprenticeship levy allowance option. You will have 3 option to choose from:

  • Select maximum allowance (£15,000)
  • No allowance (£0.00)
  • Enter a reduced allowance for this company

Select maximum allowance (£15,000)

Most companies should select this option. This will claim all of the allowance on the single company.

No allowance (£0.00)

You should only select this option if the total £15,000 allowance has already been allocated elsewhere in related company/companies. Using this option will mean the company get no relief from the levy.

Enter a reduced allowance for this company

If you need to split the allowance across a group of related companies you should enter the amount of the allowance you wish to use for this part of the group. You must make sure the total does not exceed £15,000 across the group.
Apprenticeship levy is being introduced to get all UK companies to contribute to the funding of apprenticeship training.
Yes, you will still be subject to the levy.

Apprenticeship levy is designed to push the burden of funding apprenticeship training from the taxpayer to UK employers. All UK companies are subject to the levy, not just those with current apprentice placements.
Apprenticeship levy will be charged at a rate of 0.5% of an employer's total pay bill.
Yes, HMRC are also introducing the apprenticeship levy allowance of £15,000 per tax year.

This means that for each tax year the first £15,000 worth of apprenticeship levy will be discounted from your bill.
This effectively means you will only end up paying the levy if your total pay bill for the year is greater than £3 Million. (To be more precise, anything less than a total pay bill of £3,000,200.00 will result in a levy of £0 at month 12, due to rounding rules)

You must make sure you select the correct apprenticeship levy allowance option during the year-end restart from 2016/17 to 2017/18, otherwise, the allowance will not be properly applied and you could end up under or over paying HMRC.
Where several employers are connected as a group, they will only be able to use a total levy allowance of £15,000, divided across the group.

HMRC will use the same criteria for connected companies and charities as they currently employ for Employment Allowance.

Click here for HMRC Guide: Connected companies and Employment Allowance: detailed technical guidance for employers and their agents

Click here for HMRC Guide: Connected charities and Employment Allowance: detailed technical guidance for employers and their agents

If you are part of a group of connected employers, you must decide what proportion of the levy allowance each employer in the group will be entitled to. You must make this decision at the beginning of the tax year and will be fixed for that tax year. Each employer in the group will then calculate what they have to pay with only their portion of the £15,000 levy allowance.

When working through the year end restart process to move from 2016/17 to 2017/18 you will have an option to select how much apprenticeship levy allowance can be used by the company.
Please refer to this information supplied by the chartered institute of payroll professionals:
1. The maximum level of apprenticeship levy allowance for 2017/2018 is £15,000
2. The levy allowance is on a per PAYE scheme basis i.e. £15,000 per PAYE Scheme
3. For a group of associated companies the levy allowance is £15,000 per group of companies. The levy can be split across multiple companies but the sum cannot exceed £15,000

Example 1

All employees in the PAYE scheme are contained in this payroll company and the PAYE Scheme is not part of a larger group.

Apprenticeship Levy allowance should be set to £15,000

Example 2

The PAYE scheme is split across multiple companies in this payroll system and it is not part of a larger group. Sum of pay bill does not exceed £3,000,000

Company A has an estimated Annual Pay bill per year of £1,000,000
Company B has an estimated Annual Pay bill per year of £1,000,000

In order to stop any apprenticeship levy being calculated the allowance is apportioned across the two companies.

Company A, Apprenticeship Levy allowance should be set to £7,500
Company B, Apprenticeship Levy allowance should be set to £7,500

Example 3

The PAYE scheme is split across multiple companies in this payroll system and it is not part of a larger group. Sum of pay bill does not exceed £3,000,000

Company A has an estimated Annual Pay bill per year of £2,000,000
Company B has an estimated Annual Pay bill per year of £800,000
Company C has an estimated Annual Pay bill per year of £200,000

In order to stop any apprenticeship levy being calculated the allowance is apportioned across the three companies.

Company A, Apprenticeship Levy allowance should be set to £10,000
Company B, Apprenticeship Levy allowance should be set to £4,000
Company C, Apprenticeship Levy allowance should be set to £1,000

Example 4

The PAYE scheme is split across multiple companies in this payroll system and it is not part of a larger group. Sum of pay bill exceeds £3,000,000

Company A has an estimated Annual Pay bill per year of £2,000,000
Company B has an estimated Annual Pay bill per year of £2,000,000
Company C has an estimated Annual Pay bill per year of £2,000,000

In order to calculate the correct apprenticeship levy the allowance is apportioned across the three companies.

Company A, Apprenticeship Levy allowance should be set to £5,000
Company B, Apprenticeship Levy allowance should be set to £5,000
Company C, Apprenticeship Levy allowance should be set to £5,000

Note: Since the pay bill of £3,000,000 is exceeded by adding Company A and Company B, the allowance could be apportioned as follows and the results would be the same.

Company A, Apprenticeship Levy allowance should be set to £7,500
Company B, Apprenticeship Levy allowance should be set to £7,500
Company C, Apprenticeship Levy allowance should be set to £0

Example 5

The PAYE scheme is split across multiple companies in this payroll system and it is not part of a larger group. Sum of pay bill exceeds £3,000,000 in a single company

Company A has an estimated Annual Pay bill per year of £8,000,000
Company B has an estimated Annual Pay bill per year of £6,000,000
Company C has an estimated Annual Pay bill per year of £1,000,000

Note: In this example the full allowance will be used in Company A so there is no need to apportion the value. Company B and Company C can be set to zero

Company A ,Apprenticeship Levy allowance should be set to £15,000
Company B, Apprenticeship Levy allowance should be set to £0
Company C ,Apprenticeship Levy allowance should be set to £0
If you have selected the wrong option during the year end restart you will have the option to review and change the selection once in the 2017/18 tax year.

Your levy allowance option will be visible in the company option menu.

If you do need to change your allowance option during the tax year it is likely you will need to resubmit EPS (Employer Payment Summary) report to HMRC for the previous month of the tax year.

Product specific guides will be available before the start of the 17/18 tax year with further details.
Please Note: These examples are provided for illustrative purposes only. You will not be required to calculate this yourself. Your payroll software will perform this calculation as part of your month end processes.

First, the company's levy allowance (max £15,000) is split into 12 equal monthly amounts. The levy allowance is cumulative over the year: (company's annual levy allowance÷12) × month number.
So, assuming the company is using the full £15,000, the total levy allowance for month 1 is £15,000÷12 × 1 = £1250. For month 2; £15,000÷12 × 2 = £2500. for month 3; £15,000÷12 × 3 = £3750, etc.

Next, take the total pay bill year to date and calculate 0.5% of the value. For the purposes of the apprenticeship levy the pay bill should be a combination of all pay elements subject to class 1 national insurance contributions, eg. wages, bonuses, commissions etc. HMRC will not charge the levy on payments such as benefits in kind.

Each month the cost of the apprenticeship levy will be:

(0.5% of total pay bill YTD) - ((company's annual levy allowance÷12) × month number) = Amount due to HMRC for apprenticeship levy.

Examples:
Company 1: This company is using the full £15,000 allowance.

Month 1 total pay bill subject to class 1 NIC = £260,000

Following the formula, (0.5% of total pay bill YTD) - ((company's annual levy allowance÷12) × month number) = Amount due to HMRC for apprenticeship levy.

0.5 % of total pay bill = £1,300 (0.5% of £260,000)
Levy allowance at month 1 = £1,250 ((£15,000 ÷ 12)×1)

£1,300 - £1,250 = £50 Year to date value due to HMRC for the apprenticeship levy

Month 2 total pay bill subject to class 1 NIC = £245,000

Following the formula, (0.5% of total pay bill YTD) - ((company's annual levy allowance÷12) × month number) = Amount due to HMRC for apprenticeship levy.

0.5 % of total pay bill = £2,525 (0.5% of £245,000 + £260,000)
Levy allowance at month 2 = £2,500 ((£15,000 ÷ 12)×2)

£2,525 - £2,500 = £25 Year to date value due to HMRC for the apprenticeship levy. As the company already paid £50 in month 1, they will now get £25 back from HMRC to balance the year to date due.

Company 2: This company is using the full £15,000 allowance.

Month 1 total pay bill subject to class 1 NIC = £160,000

Following the formula, (0.5% of total pay bill YTD) - ((company's annual levy allowance÷12) × month number) = Amount due to HMRC for apprenticeship levy.

0.5 % of total pay bill = £800 (0.5% of £160,000)
Levy allowance at month 1 = £1,250 ((£15,000 ÷ 12)×1)

£800 - £1,250 = £-450 Year to date value due to HMRC for the apprenticeship levy. No additional payment would be made.

Month 2 total pay bill subject to class 1 NIC = £340,000

Following the formula, (0.5% of total pay bill YTD) - ((company's annual levy allowance÷12) × month number) = Amount due to HMRC for apprenticeship levy.

0.5 % of total pay bill = £2,500 (0.5% of £160,000 + £340,000)
Levy allowance at month 2 = £2,500 ((£15,000 ÷ 12)×2)

£2,500 - £2,500 = £0.00 Year to date value due to HMRC for the apprenticeship levy. Again, No additional payment would be made.

Company 3: This company is using a partial allowance of £5,000.

Month 1 total pay bill subject to class 1 NIC = £230,000

Following the formula, (0.5% of total pay bill YTD) - ((company's annual levy allowance÷12) × month number) = Amount due to HMRC for apprenticeship levy.

0.5 % of total pay bill = £1150 (0.5% of £230,000)
Levy allowance at month 1 = £416.67 ((£5,000 ÷ 12)×1)

£1150 - £416.67 = £733.33 Year to date value due to HMRC for the apprenticeship levy. 

Month 2 total pay bill subject to class 1 NIC = £250,000

Following the formula, (0.5% of total pay bill YTD) - ((company's annual levy allowance÷12) × month number) = Amount due to HMRC for apprenticeship levy.

0.5 % of total pay bill = £2,400 (0.5% of £230,000 + £250,000)
Levy allowance at month 2 = £833.34 ((£5,000 ÷ 12)×2)

£2,400 - £833.34 = £1566.66 Year to date value due to HMRC for the apprenticeship levy.  As the company already paid £733.33 in month 1, they will now need to pay £833.33 to HMRC to balance the year to date due.

NOTE: These examples are provided for illustrative purposes only. You will not need to perform this calculation yourself, this will be included in the month end routines for your software and displayed on the reports "Month End Summary", "P32" or "PAYE Remittance"
If there is any amount due for the levy it will be included in your normal monthly remittance to HMRC.

Your payroll software will calculate what is due, adjust for your allowance and include the balance on your month end summary, P32 / P30 or PAYE remittance reports.
All the details HMRC require will be collected from EPS (Employer Payment Summary) RTI submissions.
You need to start sending EPS reports once your apprenticeship levy due year to date value is greater than zero. After this, you must then send an EPS each month, even if the apprenticeship levy year to date value returns to zero.

Example:

In months 1-3 the apprenticeship levy due is zero (£0.00), no EPS would need to be sent.

In month 4 the apprenticeship levy due raises to £750.00. You must report this to HMRC on an EPS.

You must then send an EPS each month through to the end of the tax year, even if the apprenticeship levy year to date returns to  zero.

All other EPS requirements remain the same, you are still required to send EPS submissions if you have recovery or compensation on statutory payments or CIS deductions suffered. 
HMRC guidance on this states:

"Some organisations already operate similar levy systems or other collective training arrangements. You will have to pay the apprenticeship levy even if you already contribute to another training arrangement."
The levy will not affect the way you fund training for apprentices who started an apprenticeship programme before 1 May 2017. You’ll need to carry on funding training for these apprentices under the terms and conditions that were in place at the time the apprenticeship started.

If you’re an employer with operations in Scotland, Wales or Northern Ireland, you may also want to contact your apprenticeship authority:

Scotland
Wales
Northern Ireland
There is no difference in the process for pensioner payrolls, you should follow the same steps as ordinary payrolls in terms of selecting your apprenticeship levy allowance and sending your EPS reports to HMRC.

However, due to the fact that all employees on a pensioner payroll should be on NI letter X there will be no Class 1 NIC contributions to base the apprenticeship levy on. This means, effectively there will be no visible apprenticeship levy activity and nothing further to report to HMRC.